Alan K. Henderson's Weblog


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Friday, April 28, 2006

Why Does Gasoline Cost So Much?

Exxon Mobil has a page on its website that answers the question. My summarizations are in boldface; source text in quotes.

  • Increased global demand. "Crude prices are set globally and crude oil demand is growing at its fastest pace in over a decade, driven in part by significant economic growth in developing countries and in the U.S."
  • Increased domestic demand. "Since the U.S. demand for oil exceeds domestic production, refineries here must compete in the world market for a share of both the world's available crude and, increasingly, refined products such as gasoline."
  • Specialized mixtures of gasoline drive up refining costs. "U.S. refiners must now produce and deliver to separate markets more than 20 specialized types of gasoline in order to comply with Federal Clean Air Act requirements."
There is also a graph (source: American Petroleum Institute) illustrating the price of gasoline in real dollars from 1980 to present, broken down into taxes, marketing and refining, and crude oil prices. Note that only that last category shows any significant change. Real gas prices have declined from Carter-era levels. The current uptrend correlates with the wars in Iraq and Afghanistan; wartime in the Middle East worries those oil speculators.

Chevron's site has a chart that displays gasoline tax levels by state. I have color-coded the chart to note the red and blue states.

 photo RedBlueGasPrices.gif

The Centers for American Progress has a typical left-wing response to rising gas prices. With one exception, none of its solutions directly address the price of gasoline. That exception is the plethora of gas formulas; it calls for a single fuel standard to ensure "the cleanest gasoline blend be used nationwide." The main thrust is conservation: we'll pay less for gasoline if we use less. One intriguing idea is "feebates" - new car purchasers receive rebates in direct proportion to a vehicle's gas mileage. (I guess the limousine liberals have been replaced with Prius liberals.) Then there's the old biofuels snakeoil; the Free Market Project debunks this scheme, citing both the Cato Institute and the Sierra Club.

One yet-unaddressed factor behind rising oil prices should be aired: the failure to pursue a rational nuclear policy. The cost of building nuke plants could be brought down by coming up with a standardized design. Mixed-oxide-fueled plants run on recycled nuclear waste, thus minimizing (and reducing) our waste stockpiles. Pebble-bed reactors show promise as a safer and less costly nuclear power technology. If we got serious, we could start phasing out oil-burning plants - thus reducing our demand (and thus the price) of oil - while reducing emissions and increasing energy output at the same time.

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